Dr SOUTHCOTT (4:21 PM)
—As the previous speaker said, the States Grants (General Purposes) Amendment Bill 1998 is not a controversial bill. It is a bill we debate every year which gives the states untied money in order to operate. I thought I might just take this opportunity to reflect on the differing responsibilities that the Commonwealth and state governments have, and also the proposals that the government has to improve them.

Recently there was a study done by Professor Francis Castles of the ANU and Kerry Barwise of Treasury which concluded that, when it comes to taxing revenues, Australia is one of the most centralised raisers of revenue in the world. In fact, we ranked third out of all OECD countries. If you look at other federations, in the United States, Washington raises something like 50 per cent of the total revenue raised. In Germany, Berlin raises about 30 per cent of total revenue raised. In Australia, Canberra raises about 80 per cent of total national revenue. I might point out that that study was done before the August 1997 High Court case which said that the states did not have the power to raise excise on tobacco, alcohol and petrol.

Not only is Australia more centralised than any other federation in the world; it is also more centralised than some centralised states, such as France. In fact, as I said, it was third out of all OECD countries, beating several countries which do not even have states.

While the Commonwealth is centralised on the revenue side, it is highly decentralised on the outlay side. They found that to be significant because decentralised systems actually end up spending less because the levels of bureaucracy actually provide a constraint to the money being spent.

Generally, in terms of vertical fiscal imbalance and the whole shape of the federal system, we are in poor shape in that the states only raise about 55 per cent of the revenue that they spend and Canberra supplies the rest. At the annual Premiers Conference you see fights always breaking out about the amount that Canberra will give them. It means that the states generally do not have responsibility for raising the money that they subsequently spend.

It is not a new problem. The states have been reliant, to some extent, on the Commonwealth since Federation, and especially since 1942 when they gave up their income tax power.
Malcolm Fraser, in the 1970s, attempted to reform the system by giving the states some powers, some responsibilities, and also the power to raise income tax. None of the states took up his offer.

Bob Hawke, in 1990, in reflecting the spirit of 100 years earlier, decided it was time to rejig the Federation. He went through a series of consultations with the states to introduce his new federalism. As most people will remember, new federalism was one of the first things that was poleaxed by Paul Keating prior to his final assault on Hawke. The High Court's decision last year now indicates that the states are more dependent on Canberra than ever.

In terms of how that is going to change, one of the positive things, I think, about the government's tax package is the way that the revenue from the GST is going to be given to the states. The states will be given something like $20 billion in revenue. This could be one of the last bills we actually debate in which we are going to be giving all the revenue in this sort of way. Instead, we are going to have a specific amount of GST revenue which will go direct to the states.

One of the problems is that the states have only very limited areas that they can actually tax. That is probably one of the reasons we have seen an explosion of gambling around Australia. In fact, the Economist a year or two ago described the explosion of gambling and casinos in Australia as like the rabbit plagues of the 1950s. They tend to be a little bit out of date with their images of Australia.

The taxes that the states rely on are inefficient. They rely on taxing bank transactions—things like FID and BAD. These involve significant compliance costs for people who are operating in different states because they differ depending on the jurisdiction. They also do impact a lot harder on people who have low incomes.

Also, stamp duties, again, are different between different jurisdictions. The stamp duties on shares are levied by each of the states, but are an important obstacle to Australia becoming an important financial centre in the Asia-Pacific. There are vast differences between the state tax bases and rates.

The way it is going to work is that during the transition period the states will not be worse off. It is estimated that by 2003-2004 the states will be something like $370 million better off. That is, as the economy grows, the amount of goods and services transacted will grow and the states will have more for services such as schools, hospitals and so on. Having said that, just briefly, I think that is a positive move. It does not actually address vertical fiscal imbalance because we will still be raising the money for them, but it does at least give the states some responsibility for that money. I will support the bill.